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COMMENTARY: The hidden side of government spending

When governments announce a new program, it usually receives considerable public attention. The proposal is debated in the Legislative Assembly, included in the budget speech and the annual estimates of revenue and expenditures, reviewed by legislative committees, and ultimately, after spending the monies, reflected in the public accounts (another term for the government’s financial statements). Taxpayers can see where their money is being spent.

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But there is another form of government spending that receives far less attention. It is called a tax expenditure, and most Islanders have probably never heard the term.

A tax expenditure occurs whenever government chooses to achieve a public policy objective through the tax system instead of writing a cheque. Rather than spending money directly, government reduces the amount of tax someone would otherwise pay through exemptions, deductions, credits, rebates, preferential tax rates or deferrals.

The result is exactly the same from the government’s perspective. Revenue that would otherwise have been collected is forgone to support a particular policy objective.

Economists often describe tax expenditures as “spending through the tax system.”

Suppose the government wants to encourage seniors to remain in their homes. It could create a grant program funded through annual appropriations. Everyone would see the cost in the provincial budget and estimates.

Alternatively, the government could create a tax credit for eligible seniors. The benefit received........

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